The annual Department of Defense authorization that Congress passed last week includes the Anti-Money Laundering Act (AMLA), a comprehensive reform of anti-money laundering laws. Recognizing the success of whistleblower incentives in combatting fraud against the government, securities fraud, tax fraud, commodities fraud, and other types of fraud, Congress included in the AMLA a provision that incentivizes whistleblowers to report violations of the anti-money laundering laws to the Department of the Treasury (Treasury). The AMLA also protects whistleblowers who suffer retaliation for reporting such violations to their employer or the government. Encouraging whistleblowers to take the extraordinary risk of exposing money laundering could be a game changer for AML enforcement, but only if Treasury establishes a credible and effective AML whistleblower program.
Financial Incentive to Report Money Laundering
Section 6314 of the AMLA incentivizes whistleblowers to report money laundering by requiring Treasury to pay an award of up to 30 percent of collected monetary sanctions that it recovers in a judicial or administrative action brought under the Bank Secrecy Act (BSA) that results in sanctions exceeding $1,000,000. To be eligible for an award, the whistleblower must voluntarily provide original information to their employer, Treasury, or the Department of Justice (Justice).
This is a significant change from the BSA whistleblower rewards law that has been in effect since 1984. Under that law, Treasury can pay a reward to an individual who provides original information about a BSA violation that leads to the recovery of a criminal fine, civil penalty, or forfeiture that exceeds $50,000. See 31 U.S.C. § 5323(a). Under that law, awards are capped at $150,000 or 25 percent of the net amount of the fine, penalty, or forfeiture collected, whichever is less. And the decision to pay an award is discretionary. The modest award cap has failed to encourage whistleblowers to jeopardize their careers by reporting BSA violations.
In contrast to the Dodd-Frank Act’s award eligibility rules, the AMLA whistleblower reward law does not impose limitations on award eligibility for whistleblowers who gain information through the performance of an audit of financial statements. And it permits compliance personnel to obtain whistleblower awards in that the term “whistleblower” includes an individual who provides information relating to a violation in the course of performing their job duties.
The whistleblower reward program that the AMLA establishes is similar to the SEC whistleblower program that Congress enacted in the Dodd-Frank Act, which has proven successful in enhancing the SEC’s ability to detect and halt fraud schemes and protect investors, including hard-to-detect fraud happening abroad but impacting U.S. investors and the marketplace.
Since the inception of the SEC whistleblower program, whistleblower tips have enabled the SEC to recover more than $2.7 billion in financial remedies, most of which has been or is scheduled to be returned to harmed investors. The SEC has issued awards totaling approximately $731 million to 124 individuals and received more than 40,000 tips. And the program has significantly enhanced the SEC’s ability to uncover difficult-to-detect misconduct occurring abroad. Since the program’s inception, the SEC has received tips from whistleblowers in 130 countries. Under the new AMLA whistleblower rewards law, whistleblowers abroad who are not U.S. citizens would be eligible for awards where the BSA violations they report are within the jurisdiction of U.S. law enforcement.
Protecting Anti-Money Laundering Whistleblowers Against Retaliation
Section 6314(g) of the AMLA creates a private right of action for whistleblowers who have suffered retaliation for disclosing potential BSA violations to Treasury or Justice, a federal regulatory or law enforcement agency, Congress, or a person with supervisory authority over the whistleblower. It also protects a whistleblower assisting in any investigation or judicial or administrative action of Treasury or Justice based on or related to the information that the whistleblower disclosed to the government.
In contrast to Dodd-Frank’s whistleblower protection provision, AMLA-protected whistleblowing does not require a threshold showing that the whistleblower reported a potential BSA violation to the appropriate regulatory agency. Instead, internal whistleblowing alone is protected. Moreover, the whistleblower need not meet the AMLA requirements for award eligibility to be protected under the anti-retaliation provision.
Similar to the SOX whistleblower protection law, the AMLA prohibits a wide range of retaliatory acts, including directly or indirectly discharging, demoting, suspending, threatening, blacklisting, harassing, or in any other manner discriminating against a whistleblower in the terms and conditions of employment due to the employee’s protected whistleblowing.
The causation standard in an AMLA retaliation claim is favorable to the whistleblower. To prevail, the whistleblower need only demonstrate that their protected whistleblowing was a contributing factor in the unfavorable personnel action taken by their employer. Once the whistleblower demonstrates contributing factor causation, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same adverse action in the absence of the whistleblower engaging in protected conduct.
A prevailing AMLA whistleblower is entitled to reinstatement, double back pay with interest, uncapped compensatory damages, reasonable attorney fees, any other appropriate remedy with respect to the conduct that is the subject of the action.
AMLA retaliation claims must be filed initially with the Occupational Safety and Health Administration, and 180 days after filing, the whistleblower can remove the claim to federal court and try the case before a jury.
This new law will afford robust protection to whistleblowers disclosing money laundering, but it will not apply to employees at credit unions and FDIC-insured depository institutions. Those employees can bring retaliation claims under weaker anti-retaliation laws that protect only whistleblowing to the government (not internal whistleblowing), impose a higher burden of causation, and provide anemic remedies. See 12 U.S.C. § 1831j; 12 U.S.C. §§ 1790b, 1790c. For the AMLA whistleblower program to succeed, Congress should eliminate this exception to the scope of AMLA whistleblower protection.
Establishing a Successful Anti-Money Laundering Whistleblower Program
The AMLA whistleblower reward program has the potential to become a critical tool in combatting money laundering, but Treasury will need to implement the program in a manner that encourages whistleblowers to come forward. The success of the SEC whistleblower program suggests three steps that Treasury should take to establish a credible whistleblower reward program.
First, the implementing regulations should guarantee a minimum award of 15 percent of the covered action for a whistleblower whose disclosure leads to an enforcement action that recovers at least $1 million in penalties, and they should establish a presumption that the whistleblower will receive 30 percent of the collected sanctions where the whistleblower did not engage in conduct warranting a lower award (e.g., culpability for the violation, unreasonable delay in reporting, or interfering with a company’s internal compliance system). Providing a minimum award is important because of the substantial risk entailed in reporting money laundering, which can result in employment retaliation, even blacklisting. And if a whistleblower is reporting money laundering facilitated by organized crime, drug dealers, and kleptocrats, the whistleblower could be risking their personal safety by disclosing BSA violations.
Adopting a rule setting forth a presumption to pay close to the 30 percent maximum award would simplify the award determination process and provide a stronger incentive for whistleblowers to come forward. Recently, the SEC amended the rules governing its whistleblower program by adopting a presumption that the recipient should receive the maximum award percentage where the award is $5 million or less and there are no negative award factors that would warrant decreasing the percentage.
Second, Treasury should take decisive measures to protect whistleblowers and combat attempts to silence whistleblowers. The AMLA whistleblower protection law clarifies that employers cannot force employees to waive the rights and remedies provided for in its whistleblower rewards and protection provisions in a non-disclosure agreement or policy. Treasury should adopt a regulation similar to Exchange Act Rule 21F-17(a) barring “gag clauses” in confidentiality, severance, and other employment-related agreements that have the effect of impeding disclosures to regulators and law enforcement. The SEC has taken several highly publicized enforcement actions against companies for violating this anti-gag rule. This includes an action against the perpetrators of a fraudulent securities offering for their attempt to resolve investor allegations of wrongdoing by conditioning the return of investor funds on the investors signing agreements prohibiting them from reporting potential securities law violations to law enforcement. Countering corporate efforts to silence whistleblowers will be vital to the success of the AMLA whistleblower program.
In addition, Treasury should consider taking enforcement action where a company violates the AMLA whistleblower protection statute, similar to the SEC’s enforcement of the anti-retaliation provision of the Dodd-Frank Act. A whistleblower suffering retaliation would bring an action at the Department of Labor to obtain damages, but Treasury could also impose a penalty for retaliation to deter further retaliation and embolden whistleblowers to disclose BSA violations. The SEC has taken some enforcement actions to combat whistleblower retaliation. For example, in 2014, the SEC issued a cease-and-desist order against Paradigm Capital Management Inc., a hedge fund advisory firm, for engaging in prohibited transactions and then retaliating against a whistleblower who disclosed the unlawful trading activity to the SEC.
Third, Treasury should take steps to establish rigorous confidentiality protections for whistleblower submissions. The AMLA whistleblower reward statute offers two protections. First, the it permits a whistleblower to report a BSA violation anonymously and qualify for an award where they are represented by counsel. Second, it prohibits Treasury and Justice from disclosing any information that could reasonably be expected to reveal the identity of a whistleblower, subject to limited exceptions. At a minimum, Treasury should adopt the SEC’s practices for maintaining the confidentiality of a whistleblower’s identity, including redacting from orders announcing whistleblower awards information that may tend to reveal a whistleblower’s identity and redacting the name of the enforcement action upon which the award is based. In addition, the SEC has adopted rules limiting disclosures to other agencies of information provided by a whistleblower.
The AMLA whistleblower reward program can be a game changer for AML enforcement. But to achieve its potential, Treasury must demonstrate to prospective whistleblowers that they will be rewarded for taking the risk of coming forward and protected from retaliation for doing so.
By Jason Zuckerman and Matthew Stock, December 31st, 2020, Published on Zuckerman Law websit